LONDON – A flurry of interest among companies interested in listing on the London Stock Exchange suggests the British stock market’s fortunes may be improving after many years of depressed activity.
Several big companies are looking at potential London share listings, including Chinese fast-fashion giant Shein, miner Anglo American Platinum and Hong Kong conglomerate CK Infrastructure Holdings.
An effort by the new Labour government to channel more British pension fund money into local stocks may help.
But the market is still much smaller than it was before the 2008 global financial crisis, and a recent pullback by investors from European equities has hit London harder than other European markets.
In some ways, London’s stock market challenges are similar to that of Singapore’s, where new listings have dwindled, delistings are rising and liquidity has fallen over the years.
In August 2024, a review group led by the Monetary Authority of Singapore was set up to deliver measures to revive the Singapore Exchange (SGX).
Like the SGX, initial public offerings on the London exchange have dwindled, while several big companies have chosen to switch their main share listings to New York.
An especially bitter blow was London’s failure to list one of the most promising British technology companies, chip designer Arm Holdings.
Despite lobbying by government ministers and an offer to relax British listing rules, Arm’s Japanese parent company SoftBank Group Corp chose New York for its return to public markets.
In 2022, miner BHP Group also switched its main listing to Sydney, ending a dual arrangement with London that had dated back to the company’s creation in a merger 20 years earlier.
Investors have also been deterred by the poor performance of some high-profile listings in 2021, including Deliveroo and Dr. Martens.
London is only the sixth-biggest globally now, trailing the US, China, Japan, India and Hong Kong and similar in size to Paris, a powerful reality check for an institution whose history stretches back more than 200 years.
Here is how Britain has taken measures to improve its ailing stock market:
How bad is the London stock market downturn?
The total capitalisation of London-listed equities fell from a high of US$4.3 trillion in 2007 to about US$3.2 trillion (S$42.6 trillion) in June 2024, according to data compiled by Bloomberg.
Over the same period, the value of US stocks almost trebled to US$57 trillion.
Activity has shrunk dramatically from a peak before the financial crisis, with average daily traded volume on the FTSE All-Share Index falling to about £3.6 billion (S$61.9 billion) in July 2024 from almost £14 billion in the same month of 2007.
Investors tend to pay less for illiquid stocks, as they risk a bigger loss when they come to sell.
The MSCI UK share index was trading at a 42 per cent discount to its US counterpart as at early August, based on forward price-to-earnings ratios.
To be sure, the decline in trading activity has been Europe-wide, and the London Stock Exchange remains Europe’s busiest in terms of the amount of money changing hands each day.
What is to blame?
In the early 2000s, the British government introduced rules forcing retirement fund managers to be more open about their investments and how they planned to meet future pension obligations.
One result was a shift out of riskier equities – the pension industry’s preferred investment until that point – and into safer government bonds.
The trend was reinforced over the following decade as millions of workers holding so-called defined-benefit pension plans retired.
Pension managers doubled down on government debt at the expense of shares so they could better match their long-term liabilities to those retirees.
What is more, what little equity allocation the funds retained was put increasingly into stocks in other markets as they diversified their holdings.
Britain’s pension funds held just 1.6 per cent of Britain-listed stocks in 2022, down from about 32 per cent in 1992, according to data from the Office for National Statistics.
Due to Brexit, some private trading forums, known as dark pools, and secondary-listing exchanges moved business to Amsterdam from London.
Amsterdam has also become more competitive versus London and New York since Brexit.
Still, London took a 25 per cent share of the European IPO market in 2021 – the largest of any city – before a global downturn struck in 2022.
What’s Britain doing about it?
British regulators in July announced an overhaul of their rules for companies looking to make their public debut in London.
The new regulations allow companies to carry out more activities without putting them to a shareholder vote, according to the Financial Conduct Authority.
They also make it easier for companies to have two classes of shares, a structure that is often favoured by entrepreneurs or early-stage investors who want to have a significant role in businesses even after they have gone public.
Deutsche Bank said the changes would increase the risks from buying stocks and lead to more of a “buyer beware” culture in equity investing in Britain.
What are the government’s plans?
Prime Minister Keir Starmer’s Labour Party, which won power in July, pledged in its manifesto to “act to increase investment from pension funds in UK markets”.
It outlined plans to promote private investment through a £7.3 billion national wealth fund and said it would “consider what further steps are needed to improve pension outcomes and increase investment in UK markets”.
Chancellor of the Exchequer Rachel Reeves has said she wants British pension funds to learn from the Canadian model, where larger pension plans mean they can invest far more in productive infrastructure assets than those in Britain. That may affect how funds allocate resources. BLOOMBERG
- Additional reporting by Kang Wan Chern
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